Cosmetics, Jewelry & Accessories Retailers M&A Outlook: If You ...

RetaileRs M&a OutlOOk: 2012
key Near-term M&a Drivers
M&a implications of a Growing
Chinese Market: the Dragon
likes Prada
In June 2011, Italian fashion group Prada
listed its shares in Hong Kong rather than
Milan, acknowledging the importance of
the transformation in global wealth distribution
and spending patterns taking place to
the benefit of Asian markets. Previously, in
May 2010, L’Occitane, a French cosmetics
and perfume company, also listed in Hong
Kong as part of its regional expansion
strategy. We expect others to follow.
Change fueling growth
“Vast increases in wealth and affl uence,
proliferation of information over the internet,
increasing penchant for overseas
travel and rapid urbanization outside
China’s biggest cities are all fuelling
growth of luxury goods. Other potential
markets for luxury companies include
India and Indonesia.”
Richard Winter
Retail Specialist
M&A International Inc.,
China
For some time, China has been the main
growth driver for the cosmetics, jewelry and
accessories sector, reporting a signifi cant
increase in sales despite major economic
problems worldwide (Figure 10). Currently,
with mature markets reporting almost no
economic expansion, Chinese buyers, both
domestic and international, account for over
20% of global sales of cosmetics, jewelry and
accessories, according to a report published
by Bain & Company titled “Luxury Goods
Worldwide Market Study, 2011”.
The growing demand from China refl ects the
country’s rapidly increasing wealth, greater
availability of online information, more overseas
travel by its citizens, rapid urbanization
and increasing affl uence in the semi-agricultural
hinterland areas. For the fi rst time, in
2011 China reported its millionth millionaire,
together with over 5,000 ultra-high net worth
nationals whose individual wealth exceeded
$50mn, a situation exceeded only by the US.
Over 100 second-tier Chinese cities report
populations of over one million, whose citizens
enjoy purchasing power comparable to
that of their tier-one counterparts and a desire
to purchase luxury brands second to none.
To access the Chinese market, Western
brands have adopted a dual strategy. Firstly,
brands such as Shanghai Tang (owned by
the Richemont Group) and Hermès have
launched Chinese-specifi c labels designed
to capitalize on the strong demand amongst
M&A International Inc. - the world’s leading M&A alliance
bn
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10
8
6
4
2
0
Y-O- Y Y
Growth
7.1
9.6
12.9
2009 2010 2011E
20%
35% 35%
3
Figure 10: Chinese domestic personal luxury goods market – sales in €bn
Source: “Luxury Goods Worldwide Market Study, 2011, Bain & Company”, E-Estimates
domestic consumers for products based on
and consistent with the country’s own rich
cultural heritage.
Secondly, brands already established in
China are also preparing to participate in
upcoming strategic acquisitions intended
to import Western brands to the Chinese
market. Local companies have proactively
taken advantage of weak European stock
markets and low corporate valuations to
buy luxury assets relatively inexpensively.
For example, Fosun International, a leading
privately owned Chinese conglomerate,
bought a 9.5% equity stake in Greek-based
jewelry and luxury goods retailer Folli Follie
Group for $121mn in May 2011. Fosun’s
investment is expected to facilitate Folli
Follie’s expansion, giving the company access
to affl uent consumers in China. Folli
Follie Group also owns Links of London,
a jewelry retailer, which it acquired in 2006.
In a similar move, International Volant Limited,
a wholly-owned subsidiary of China
Haidian, a manufacturer and retailer of
watches throughout China, acquired Eterna
AG Uhrenfabrik from F.A. Porsche Beteiligungen
GmbH for $27.4mn in June 2011.
The acquisition was aimed at securing watch
components, which Haindan believes “will be
a limiting factor for the industry in the near
future”.
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